Strickland proposes freezing income-tax cuts for two years

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Ohio Governor Ted Strickland (D-Lisbon)

COLUMBUS (AP) — Gov. Ted Strickland on Wednesday proposed freezing income-tax cuts for two years in the wake of a court decision that halted his plan to put lottery slot machines at racetracks.

Strickland suggested postponing the final year of the overall 21 percent tax cut, raising about $850 million. The cuts were scheduled to be phased in over five years at a rate of 4.2 percent a year.

The governor, who pushed this year for an overhaul in school funding and curriculum, said leaders face three choices: raising taxes, cutting education funding or postponing the final year of income-tax reductions.

“I am more convinced than ever that Ohioans understand the link between education and job creation,” Strickland said. “Underfunding education at this critical time would undermine our ability to position our state for growth after the economy recovers. It would also be devastating for our schools in the near term.”

Strickland said that in postponing the income-tax reduction, Ohioans will pay more only in the 2009 and 2010 tax years than the 2008 tax year if they earned more money.

Otherwise, Ohioans will see no change — and most will actually see a slight decrease because the amount that can be claimed as a personal exemption has grown, he said.

The governor’s request must be approved by the state Legislature, where the House is controlled by fellow Democrats and the Senate is controlled by Republicans. Strickland did not request that lawmakers act on his proposal within a certain amount of time but said “the sooner the better.”

Strickland said he plans to move forward on the final 4.2 percent reduction once the current budget’s troubles are alleviated.

Last week, the Ohio Supreme Court ruled that the slot-machine proposal Strickland first turned to during the budget pinch is subject to voter approval. Strickland, who reversed himself on expanding gambling to propose the slots plan, had been counting on it to contribute about $850 million to help balance the two-year education budget.

Strickland said the court’s decision made it impossible for the slots revenue to contribute to the current two-year budget. The plan also faces two additional lawsuits questioning the constitutionality of expanding the Ohio Lottery to include slots.

Strickland said he will seek a declaratory judgment from the Ohio Supreme Court on whether the slots plan is legal. If it is, Strickland said he would consider going forward with it in the future but not soon enough to raise money for the current budget.

The governor’s political opponents are likely to hammer him for what, in their view, is a tax increase proposal he announced Wednesday. The move was characterized as a tax increase before the governor’s news conference announcing it had even concluded.

State Rep. Jay Hottinger, a Republican from Newark, said in a statement he was grateful the Democratic governor had started the debate on filling the hole created by the slots.

“However, Governor Strickland has consistently maintained that raising taxes in a poor economy is a bad idea that will likely delay the economic recovery of Ohio. Now he has changed his mind,” Hottinger said. “I think he was right the first time.”

Strickland said putting off tax cuts for two years is not a tax increase but the avoidance of one.

“Now, of course, some will try to score political points by branding this delay as a tax increase,” Strickland said. “Contrary to what some may think, I don’t spend most of my life thinking about an election and what my opponents may or may not say about me.”

The initial tax cuts were part of a package of tax reforms proposed by former Gov. Bob Taft, a Republican, in 2005 and enacted as part of a larger package of tax-law changes intended to make Ohio more competitive.

COMPARISON

A family of four with a household income of $60,000 paid $1,474 in taxes in 2008. Under Strickland’s plan, they’ll owe $1,467 for ’09, a savings of about $7 over the previous year, according to statistics compiled by the Ohio Department of Taxation. But under the tax withholding implemented in January, they would have owed $1,389, $85 less than ’08.

The rates increase with income. A family of four earning $100,000 would owe $3,274 under Strickland’s plan, compared with $3,105 under the tax reform reduction — savings of $9 and $178, respectively, compared with ’08.

And a family of four earning $200,000 would owe $8,680 under Strickland’s plan and $8,238 under the tax-reform reduction — savings of $12 and $454, respectively.